Connect with us

Subscribe for latest updates

When That Raise Isn’t Really a Raise

by ETF Base on June 26, 2011

As the Fed continues printing money (delicately referred to as various rounds of quantitative easing), real inflation is alive and well. With the economy in the doldrums and employees afraid to leave (or tied to their underwater mortgages), there’s little incentive for employers to provide raises above and beyond the bare minimum to retain the majority of employees. So, when given that 1.5% or 2% raise (or in many cases, no raise), it might “seem” like you’re getting a raise, but in reality, you’re probably actually losing money year over year. That’s a tough pill to swallow – losing money as you progress through your career. You’d think it should be the other way around. But here’s what’s really going on.

Even if you have decent benefits, chances are you’re at least paying some portion of the health insurance premium. Personally, the increase on our plan at work pretty much negated my annual raise. Then, factor in the cost increases in stuff people really buy – like gas, food and clothing – and it’s not deflation we should be fearing, but inflation. I saw a note this week that the Fed is considering changing how the CPI is calculated which is sure to cause some controversy. And higher gas prices are in effect a tax. So, both the IAEA and the Obama administration allowed a tap of the Strategic Petroleum Reserve, which is, in effect, a tax break in stealth (note: election year coming up). So, in the near term, that might help push down gas prices but many analysts paint this move as purely temporary and may result in higher inflation down the road.

So, the current confluence of low wage increases, rising inflation and the lack of worker mobility will likely to continue to supress consumer spending, which cycles back to pay. If you thought this year’s raise wasn’t really a raise, buckle up, because it may be several more years of the same.